Federal and State Disclosures

Loan Programs

Adjustable Rate Mortgages

An adjustable-rate mortgage
(ARM) has an interest rate that can change
during the life of the loan, with the
possibility of both increases and decreases to
the interest rate and the amount of the monthly
mortgage payment.

ARM interest rates generally
remain fixed during an initial period, after
which rates adjust periodically.typically,
annually, semi-annually, or monthly according
to an index and a margin, each of which is
specified in the related mortgage note. Rates
are typically capped in terms of the size of
the rate adjustment at the first change date
(initial cap) and/or subsequent change dates
(periodic cap) and the maximum rate over the
life of the loan (life-of-loan cap).

The interest rate for an ARM
is tied to a financial index. When comparing
ARMs that have different indices, you may wish
to consider how that index has performed over
an
extended period of time, although past index
values may not be indicative of future index
values. Commonly used indices include CMT
(Constant Maturity Treasuries), LIBOR
(London Interbank Offered Rate), and COFI (11th
District Monthly Weighted Average Cost of Funds
Index of the Federal Home Loan Bank of San
Francisco).

Hybrid ARMs—also known as
fixed-period ARMs—have fixed rates for a
designated number of years (e.g., 3, 5, 7, or
10 years), after which the loan adjusts on a
regular periodic basis as set forth in the
related mortgage note. Hybrid ARMs have become
more common over the last few years.

Some ARMs allow for "negative
amortization." A negative amortization ARM is
one in which the monthly payment does not
change as often as the interest rate does, or a
payment cap applies, or both. If any of your
payments are not sufficient to cover the
interest due, the difference is added to your
loan amount. Generally, at the end of the year,
the loan is re-amortized to calculate a new
monthly payment. Interest is then charged on
the higher principal balance. In the case of
egative amortization ARMs, caps generally apply
to the monthly payment amount rather than to
the interest rate.

Negative amortization ARMs
also limit the amount by which the principal
balance increases due to negative amortization.
Some common limits require re-amortization when
negative amortization causes the unpaid
principal balance to exceed 110%, 115% or 125%
of the original loan principal balance. You
should note that with negative amortization
ARMs, the amount of equity in a mortgaged
property may be reduced and the principal
balance could become higher than the original
loan amount.

Program
Features

The most common types of ARMs
include:

6-Month;

1/1 (adjusts annually);

3/1 (fixed for three years,
adjusts annually thereafter);

3/3 (fixed for three years,
adjusts every three years
thereafter);

5/1 (fixed for five years,
adjusts annually thereafter);

7/1 (fixed for seven years,
adjusts annually thereafter); and

10/1 (fixed for ten
years, adjusts annually
thereafter).

Changes to the interest rate are
limited by initial rate caps, periodic
rate caps, and
life-of-loan rate caps (each as
described above).

Adjustments are computed by adding a
specified index value to the margin
specified
in the mortgage note.